投资学第7版Test Bank答案17.doc

Chapter 17 Macroeconomic and Industry Analysis Multiple Choice Questions1.A top down analysis of a firm starts with _. A)the relative value of the firm B)the absolute value of the firm C)the domestic economy D)the global economy E)the industry outlook Answer: D Difficulty: Easy 2.An example of a highly cyclical industry is _. A)the automobile industry B)the tobacco industry C)the food industry D)A and B E)B and C Answer: A Difficulty: Easy Rationale: Consumer durables, such as automobiles, are highly cyclical as purchases can be delayed until good times. Necessities, low-ticket items, and addictive products are purchased in good times and bad.3.Demand-side economics is concerned with _. A)government spending and tax levels B)monetary policy C)fiscal policy D)A and B E)A, B, and C Answer: E Difficulty: Easy Rationale: Demand-side economics is concerned with monetary and fiscal policy (government spending and taxing).4.The most widely used monetary tool is _. A)altering the discount rate B)altering the reserve requirements C)open market operations D)altering marginal tax rates E)none of the above Answer: C Difficulty: Easy Rationale: The Federal Reserves open market operations are the most widely used and most effective monetary tool for influencing interest rates.5.The real, or inflation-adjusted, exchange rate, is A)the balance of trade. B)the budget deficit. C)the purchasing power ratio. D)unimportant to the U. S economy. E)none of the above. Answer: C Difficulty: Easy Rationale: The ratio of one countrys purchasing power to anothers is called the real, or inflation adjusted, exchange rate, and is an important measure of the relative costs of domestic versus foreign goods.6.The normal range of price-earnings ratios for the S&P500 Index is A)between 2 and 10. B)between 5 and 15. C)less than 8. D)between 12 and 25 E)greater than 20. Answer: D Difficulty: Moderate Rationale: Stock prices commonly trade at between 12 and 25 times earnings.7.Monetary policy is determined by A)government budget decisions. B)presidential mandates. C)the board of Governors of the Federal Reserve System. D)congressional actions. E)none of the above Answer: C Difficulty: Easy Rationale: The Board of Governors of the Federal Reserve System determines monetary policy through open market operations, changes in the discount rate and reserve requirement adjustments.8.A trough is _. A)a transition from an expansion in the business cycle to the start of a contraction B)a transition from a contraction in the business cycle to the start of an expansion C)a depression that lasts more than three years. D)only something used by farmers to feed pigs and not an investment term E)none of the above Answer: B Difficulty: Easy Rationale: The trough occurs when the economy has hit rock bottom in the business cycle and recovery is ahead.9.A peak is _. A)a transition from an expansion in the business cycle to the start of a contraction B)a transition from a contraction in the business cycle to the start of an expansion C)a depression that lasts more than three years. D)only something used by farmers to feed pigs and not an investment term E)none of the above Answer: A Difficulty: Easy Rationale: The peak occurs when the economy has hit the top in the business cycle.10.If the economy is growing, firms with high operating leverage will experience _. A)higher increases in profits than firms with low operating leverage. B)similar increases in profits as firms with low operating leverage. C)smaller increases in profits than firms with low operating leverage. D)no change in profits. E)none of the above. Answer: A Difficulty: Easy Rationale: As sales increase, firms with high operating leverage spread these fixed costs over more units and thus increase profits.11.If the economy is shrinking, firms with high operating leverage will experience _. A)higher decreases in profits than firms with low operating leverage. B)similar decreases in profits as firms with low operating leverage. C)smaller decreases in profits than firms with low operating leverage. D)no change in profits. E)none of the above. Answer: A Difficulty: Easy Rationale: As sales decrease, firms with high operating leverage spread these fixed costs over fewer units and thus decrease profits.12.If the economy is growing, firms with low operating leverage will experience _. A)higher increases in profits than firms with high operating leverage. B)similar increases in profits as firms with high operating leverage. C)smaller increases in profits than firms with high operating leverage. D)no change in profits. E)none of the above. Answer: C Difficulty: Easy Rationale: As sales increase, firms with high operating leverage spread these fixed costs over more units and thus increase profits.13.If the economy is shrinking, firms with low operating leverage will experience _. A)higher decreases in profits than firms with high operating leverage. B)similar decreases in profits as firms with high operating leverage. C)smaller decreases in profits than firms with high operating leverage. D)no change in profits. E)none of the above. Answer: C Difficulty: Easy Rationale: As sales decrease, firms with high operating leverage spread these fixed costs over fewer units and thus decrease profits.14.GDP refers to _. A)the amount of personal disposable income in the economy. B)the difference between government spending and government revenues. C)the total manufacturing output in the economy. D)the total production of goods and services in the economy E)none of the above Answer: D Difficulty: Easy Rationale: GDP is a measure of the productive output of the country, both in terms of goods and services.15.The average duration of unemployment and changes in the consumer price index for services are_. A)leading economic indicators B)coincidental economic indicators C)lagging economic indicators D)composite economic indicators E)none of the above Answer: C Difficulty: Moderate Rationale: These indicators (C) lag the general economy, and are indicators that the economy is about to change directions.16.A firm in an industry that is very sensitive to the business cycle will likely have a stock beta _. A)greater than 1.0 B)equal to 1.0 C)less than 1.0 but greater than 0.0 D)equal to or less than 0.0 E)There is no relationship between beta and sensitivity to the business cycle. Answer: A Difficulty: Moderate Rationale: Cyclical stocks are more volatile than the market in general, and thus have betas greater than 1.0.17.If the economy were going into a recession, an attractive industry to invest in would be the _ industry. A)automobile B)medical services C)construction D)A and C E)B and C Answer: B Difficulty: Easy Rationale: Medical services are necessities, and thus perform about the same regardless of the business cycle. Automobile and construction industries are cyclical, and perform poorly during recessions.18.The stock price index and contracts and new orders for nondefense capital goods are A)leading economic indicators. B)coincidental economic indicators. C)lagging economic indicators. D)not useful as economic indicators. E)none of the above. Answer: A Difficulty: Moderate Rationale: Contracts and orders for plant and equipment are indicative of future economic times, and thus are leading economic indicators. The stock price index is one of the best leading economic indicators, a reflection of market efficiency.19.A firm in the early stages of the industry life cycle will likely have _. A)high market penetration. B)high risk. C)rapid growth D)A and C E)B and C Answer: E Difficulty: Easy Rationale: In the early stages of the industry life cycle, the firm is likely to be high in risk.20.Assume the U. S. government was to decide to increase the budget deficit. This action will most likely cause _ to increase A)interest rates B)government borrowing C)unemployment D)both A and B E)none of the above Answer: D Difficulty: Easy Rationale: Increasing the deficit raises government borrowing, increases the demand for funds and thus increases the interest rates. Deficit spending is also used to stimulate the economy by encouraging increasing the output of economy.21.Assume the U. S. government was to decide to decrease the budget deficit. This action will most likely cause _ to decrease A)interest rates B)government borrowing C)unemployment D)both A and B E)none of the above Answer: D Difficulty: Easy Rationale: decreasing the deficit lowers government borrowing, decreases the demand for funds and thus decreases the interest rates.22.Assume that the Federal Reserve decreases the money supply. This action will cause _ to decrease. A)interest rates B)the unemployment rate C)investment in the economy D)trade balance E)none of the above Answer: C Difficulty: Easy Rationale: Decreasing the money supply is an economic contraction strategy, resulting in a decreased output of the economy.23.If the currency of your country is depreciating, the result should be to _ exports and to _ imports. A)stimulate, stimulate B)stimulate, discourage C)discourage, stimulate D)discourage, discourage E)not affect, not affect Answer: B Difficulty: Moderate Rationale: Depreciating currency means that countrys goods and services are cheaper and thus that countrys exports are stimulated. Likewise, goods and services of other countries are now more expensive; and thus production is discouraged.24.If the currency of your country is appreciating, the result should be to _ exports and to _ imports. A)stimulate, stimulate B)stimulate, discourage C)discourage, stimulate D)discourage, discourage E)not affect, not affect Answer: C Difficulty: Moderate Rationale: An appreciating currency means that countrys goods and services are more expensive to foreigners and thus that countrys exports are discourages. Likewise, goods and services of other countries are now less expensive; and thus imports are stimulated.25.Increases in the money supply will cause demand for investment and consumption goods to _ in the short run and cause prices to _ in the long run. A)increase, increase B)increase, decrease C)decrease, increase D)decrease, increase E)be unaffected, be unaffected Answer: A Difficulty: Moderate Rationale: An increase in the money supply results in increased demand for goods and services, which ultimately is reflected in higher prices for these goods and services.26.The North American Industry Classification System (NAICS) A)are for firms that operate in the NAFTA region. B)group firms by industry. C)are a perfect classification system for firms. D)A and B. E)A and C. Answer: D Difficulty: Easy Rationale: The NAICS is a grouping of NAFTA firms by industry. However, the classification system is not perfect as firms with dissimilar clients may be classified in one category.27.If interest rates increase, business investment expenditures are likely to _ and consumer durable expenditures are likely to _. A)increase, increase B)increase, decrease C)decrease, increase D)decrease, decrease E)be unaffected, be unaffected. Answer: D Difficulty: Moderate Rationale: As interest rates increase, it becomes too expensive for businesses to increase their investment expenditures and the fewer durable goods produced become more expensive.28.Fiscal policy generally has a _ direct impact than monetary policy on the economy, and the formulation and implementation of fiscal policy is _ than that of monetary policy. A)more, quicker B)more, slower C)less, quicker D)less, slower E)Cannot tell from the information given. Answer: B Difficulty: Moderate Rationale: Fiscal policy has a more direct impact on the economy than does monetary policy. However, the formulation and implementation of fiscal policy is much slower than monetary policy. Monetary policy is determined by the Federal Reserve System. Fiscal policy must be deliberated, passed, and implemented by both the executive and legislative branches of the federal government.29.Fiscal policy is difficult to implement quickly because A)it requires political negotiations. B)much of government spending is nondiscretionary and cannot be changed. C)increases in tax rates affect consumer spending gradually. D)A and B. E)A and C. Answer: D Difficulty: Easy Rationale: Fiscal policy must be negotiated and can change only discretionary items within the budget, making it more difficult to implement. However, fiscal policy changes affect consumer spending almost immediately.30.Inflation A)is the rate at which the general level of prices is increasing. B)rates are high when the economy is considered to be overheated. C)is unrelated to unemployment rates. D)A and B. E)A and C. Answer: D Difficulty: Easy Rationale: A and B are true. The government attempts to walk the fine line between the trade offs between unemployment and inflation.Use the following to answer questions 31-36:Two firms, A and B, both produce widgets. The price of widgets is $1 each. Firm A has total fixed costs of $500,000 and variable costs of 50 cents per widget. Firm B has total fixed costs of $240,000 and variable costs of 75 cents per widget. The corporate tax rate is 40%. If the economy is strong, each firm will sell 1,200,000 widgets. If the economy enters a recession, each firm will sell 1,100,000 widgets. 31.If the economy enters a recession, the after-tax profit of Firm A will be _. A)$0 B)$6,000 C)$30,000 D)$60,000 E)none of the above Answer: C Difficulty: Moderate Rationale: $1,100,000 - 500,000 FC - 0.5($1,100,000) VC = ($50,000)(1-.4) = $30,00032.If the economy enters a recession, the after-tax profit of Firm B will be _. A)$0 B)$6,000 C)$36,000 D)$60,000 E)none of the above Answer: E Difficulty: Moderate Rationale: $1,100,000 - $240,000 FC - 0.75(1,100,000) VC = $-35,000 (1 - 0.4) = -$21,000.33.If the economy is strong, the after-tax profit of Firm A will be _. A)$0 B)$6,000 C)$36,000 D)$60,000 E)none of the above Answer: D Difficulty: Moderate Rationale: $1,200,000 - $500,000 FC- 0.5(1,200,000) VC = $100,000 (1 - 0.4) = $60,000.34.If the economy is strong, the after-tax profit of Firm B will be _. A)$0 B)$6,000 C)$36,000 D)$60,000 E)none of the above Answer: C Difficulty: Moderate Rationale: $1,200,000 - $240,000 FC - 0.75(1,200,000) VC = $60,000 (1 - 0.40) = $36,000.35.Calculate firm As degree of operating leverage. A)11.0 B)2.86 C)9.09 D)1.00 E)none of the above. Answer: A Difficulty: Difficult Rationale: Based on test bank questions 17.31 and 17.33,DOL = (60,000 - 30,000)/30,000/(1,200,000-1,100,000)/(1,100,000) = 1.000/.0909 = 11.0.36.Calculate firm Bs degree of operating leverage. A).714 B)9.09 C)29.86 D)7.14 E)none of the above. Answer: C Difficulty: Difficult Rationale: Based on test bank questions 17.32 and 17.34,DOL = (36,000 + 21,000)/21,000/(1,200,000-1,100,000)/(1,100,000) = 2.7143/.0909 = 29.8637.Classifying firms into groups, such as _ provides an alternative to the industry life cycle. A)slow-growers B)stalwarts C)countercyclicals D)A and B E)A and C Answer: D Difficulty: Easy Rationale: The groups in this classification are slow-growers, stalwarts, fast-growers, cyclicals, turnarounds, and asset plays.38.Supply-side economists wishing to stimulate the economy are most likely to recommend A)a decrease in the money supply. B)a decrease in production output. C)an increase in the real interest rate D)a decrease in the tax rate. E)none of the above. Answer: D Difficulty: Moderate Rationale: Supply-siders argue that lowering tax rates stimulates investment.39.Which of the following are not examples of defensive industries? A)food producers. B)durable goods producers. C)pharmaceutical firms. D)public utilities E)B and C Answer: B Difficulty: Easy Rationale: B represents a cyclical industry, while the others are examples of defensive industries.40._ is a proposition that a strong proponent of supply side economics would most likely stress. A)Higher marginal tax rates will lead to a reduction in the size of the budget deficit and lower interest rates as they depend on government revenues. B)Higher marginal tax rates promote economic inefficiency and thereby retard aggregate output as they encourage investors to undertake low productivity projects with substantial tax she